Stocks advance on election optimism

Wall Street extended its November rally Tuesday, carrying the Dow Jones industrials to a new trading high as investors anticipated a business-friendly outcome in the mid-term elections and bought stocks across the market.

Boeing led the blue chips after winning a $2.3-billion order from FedEx. Strong quarterly reports from both Toyota Motor and Emerson Electric also lent strength to the market.

The broad advance came as investors bought optimistically ahead of results of Tuesday’s election, which held the potential for stripping power from Republicans in the House of Representatives for the first time since 1994. Stocks often rally on elections as Wall Street bets that change will lead to an environment more favorable to business; the theory on the Street is that a split in power in Washington would create legislative gridlock, slowing down regulatory change.

“Gridlock is good. Wall Street doesn’t like change,” said Charles Gabriel, senior Washington analyst at Prudential Securities. “You’re not going to have runaway spending increases, you won’t have a repeal of the Bush tax cuts, and there’s no legislative change that will roil industries. The green light is on for equity investments because you’ve got protection against any major changes.”

The Dow rose 51.22 points, or 0.4%, to 12,156.77, building on Monday’s 119-point gain. The index of 30 large-cap stocks rose as high as 12,196.32 earlier in Tuesday’s session, surpassing its previous trading high of 12,167.02.

Broader stock indexes also advanced. The Standard & Poor’s 500 index rose 3.06 points, or 0.2%, to 1,382.84, and the Nasdaq composite index added 9.93 points, or 0.4%, to 2,375.88.

Bond yields fell as a rush of unsettling news from home builders Toll Bros. and Beazer Homes USA bolstered the view that the housing downturn would continue to weaken economic growth.

The benchmark 10-year Treasury note dropped to 4.66%, from 4.70% on Monday.

Oil prices again fell below the $60 mark. A barrel of light, sweet crude declined $1.09 to $58.93.

The jump in stocks came after the Dow had its best day in a month Monday, soaring as a spate of merger announcements soothed investors who worried last week about an economic slowdown. The two-day rally shows that investors remain resilient and believe that the market still has more room to advance.

“I think the move we’re seeing this week is that perhaps this might not be a weak economy after all,” said Brian Gendreau, investment strategist at ING Investment Management. “It isn’t clear what the catalyst would be to make the market go significantly up or down for the balance of the year. One could be the housing market, but I don’t think that would even have a broad effect on stocks.”

In other market highlights:

* Toll Bros. fell 1 cent to $28.04 after it forecast a 10% drop in quarterly home-building revenue. Beazer Homes posted a 44% decline in fourth-quarter earnings because of lower demand for new homes and said there was significant discounting in most markets. However, investors pushed shares up 13 cents to $42.07.

* Boeing rose $4.37, or 5.4%, to $84.85 after FedEx announced it would acquire 15 new 777 freighter aircraft, with options to double that order. FedEx said it decided to buy the Boeing aircraft after rival Airbus announced significant delays for delivery of its A380 jets. FedEx shares rose $1.09 to $115.03.

* Toyota rose $1.48 to $121.21 after the automaker reported that strong sales in North America and Europe drove profit higher during its fiscal second quarter. The results helped put the company on pace to overtake General Motors as the world’s biggest automaker. GM slipped 8 cents to $34.62.

* Emerson rose $4.87, or 5.9%, to $87.43 after the diversified manufacturer posted strong fourth-quarter results, raised its dividend and announced a stock split. The company also said it expected a double-digit profit increase in 2007.

* The Philadelphia semiconductor index advanced 1.9%. Altera climbed 88 cents to $19.32 after reporting a 12% increase in net income on rising sales of chips used in communications equipment. Irvine’s Broadcom, a maker of chips for consumer devices, rallied $1.73 to $31.98.

Cisco Systems, which reports earnings today, added 16 cents to $24.84. UBS raised its forecast for shares of the world’s largest maker of computer-networking equipment by 13% to $27.

* H&R; Block surged $1.39, or 6.4%, to $23.28 for the best gain in the S&P; 500. Shares of the largest U.S. tax preparer had their biggest gain in a year. The company said Monday that it would shut 12 of 33 branch offices at its Option One Mortgage unit in Irvine and look at options including a sale or spinoff.

* Dean Foods fell $2.79, or 6.6%, to $39.36 for the sharpest retreat in the S&P; 500. The milk processor said profit from continuing operations was 54 cents a share. It was expected to earn 56 cents a share.

* Nortel Networks, North America’s biggest maker of telephone equipment, plunged 26 cents to $2.13. The company forecast sales of as much as $3.27 billion in the fourth quarter, less than the $3.42-billion estimate of a Morgan Stanley analyst.

Advancing issues outnumbered decliners by about 3 to 2 on the New York Stock Exchange.

Overseas, Japan’s Nikkei stock average closed up 0.2%. At the close, Britain’s FTSE 100 was up 0.3%, Germany’s DAX index rose 0.5%, and France’s CAC-40 added 0.7%.